-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fyzz9Gjl1S8vpDXET6LlYgxd6vlHr7lkf+nMTxhhnBK8HlRUK++uz96tI8qag+l6 LSYdPgdckk/0uTql4gYBQQ== 0000812006-99-000029.txt : 19990909 0000812006-99-000029.hdr.sgml : 19990909 ACCESSION NUMBER: 0000812006-99-000029 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHURCHILL TAX FREE TRUST CENTRAL INDEX KEY: 0000812006 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05086 FILM NUMBER: 99707552 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126976666 MAIL ADDRESS: STREET 2: 380 MADISON AVE SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: CHURCHILL TAX FREE FUND OF KENTUCKY DATE OF NAME CHANGE: 19880911 N-30D 1 MANAGER AND FOUNDER AQUILA MANAGEMENT CORPORATION 380 Madison Avenue, Suite 2300 New York, New York 10017 INVESTMENT SUB-ADVISER BANC ONE INVESTMENT ADVISORS CORPORATION 416 West Jefferson Street Louisville, Kentucky 40202 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Thomas A. Christopher Douglas Dean Diana P. Herrmann Carroll F. Knicely Theodore T. Mason Anne J. Mills William J. Nightingale James R. Ramsey OFFICERS Lacy B. Herrmann, President Jerry G. McGrew, Senior Vice President Teresa M. Priest, Vice President L. Michele Robbins, Vice President Rose F. Marotta, Chief Financial Officer Richard F. West, Treasurer Edward M.W. Hines, Secretary DISTRIBUTOR AQUILA DISTRIBUTORS, INC. 380 Madison Avenue, Suite 2300 New York, New York 10017 CUSTODIAN BANK ONE TRUST COMPANY, N.A. 100 East Broad Street Columbus, Ohio 43271 TRANSFER AND SHAREHOLDER SERVICING AGENT PFPC INC. 400 Bellevue Parkway Wilmington, Delaware 19809 INDEPENDENT AUDITORS KPMG LLP 345 Park Avenue New York, New York 10154 Further information is contained in the Prospectus, which must precede or accompany this report. SEMI-ANNUAL REPORT JUNE 30, 1999 CHURCHILL TAX-FREE FUND OF KENTUCKY A TAX-FREE INCOME INVESTMENT [Logo of Churchill Tax-Free Fund of Kentucky: a circle with a flying pegasus inside) ONE OF THE AQUILAsm GROUP OF FUNDS [Logo of the Aquila Group of Funds: an eagle's head] CHURCHILL TAX-FREE FUND OF KENTUCKY SEMI-ANNUAL REPORT "TAKE PRIDE IN HOW YOUR INVESTMENT IS HELPING OTHERS - WHILE PRIMARILY HELPING YOU" Dear Fellow Shareholders: August 20, 1999 Our surveys of shareholders of Churchill Tax-Free Fund of Kentucky have shown that you and other owners of the Fund bought your shares primarily for TAX-FREE INCOME. And, secondarily, the knowledge - provided through the stability of the Fund - that your money would be there when you needed it. Additionally, our surveys showed that most of our shareholders are pre-retirees or retirees. These are people who are looking forward to making sure that they have the security of a sound income source from the Fund when they are no longer in the workforce. The point you may not have fully appreciated - when you made your investment in the Fund - was that in the process of having the Fund provide you with these benefits, it also provides help to a variety of others within your community and Kentucky. And, this is a factor in which you can take real PRIDE. The economy of Kentucky is growing at a dynamic rate. As this growth takes place, new and additional municipal projects are needed for the benefit of the citizens of Kentucky and the various communities in it. These projects include schools, highways, recreational facilities, and a whole array of useful public purpose projects. These projects are what help economic development and provide a high quality of life for the citizens of Kentucky. We think it is important for you to realize this. The projects that the Fund helped finance are all ones that you and others can reach out and touch. We are illustrating for you some of the various kinds of municipal projects that your investment in the Fund has helped create in Kentucky. [Photo] Kentucky Turnpike Authority [Photo] Warren County Judicial Center [Photo] Kenton County Airport Board [Photo] Jefferson County Hospital Revenue The tax laws of Kentucky, as well as those of the Federal government, allow you to receive income from your investment in the Fund TRIPLE TAX-FREE. It is realized by the Commonwealth and Federal governmental authorities that it is essential that various municipal projects be built with an advantage to the investor. This advantage is primarily one of TAX-FREE income for you. You can take comfort in the knowledge that your investment in the Fund is comprised of a portfolio of municipal securities which possess extremely high quality. Therefore, you can "SLEEP WELL AT NIGHT" knowing that the chances of anything happening to these high quality bonds is very slight indeed. The reason for this, of course, is that the various municipal projects represented in the Fund have behind them a very sound stream of taxes and revenues generated by the projects themselves. We again wish to emphasize that while primarily helping you, Churchill Tax-Free Fund of Kentucky is also helping others in your communities and Kentucky. Consequently, you can take great PRIDE in your investment in Churchill Tax-Free Fund of Kentucky. You can rest assured that the overall management of the Fund is doing a very careful job of "MINDING THE STORE" for you. We appreciate the continued confidence that you have placed in the Fund through your investment in Churchill Tax-Free Fund of Kentucky. Sincerely, Lacy B. Herrmann President and Chairman, Board of Trustees CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF INVESTMENTS JUNE 30, 1999 (UNAUDITED) STATE AGENCIES (15.8%) Kentucky Higher Education Student Loan Corporation Insured Student Loan Revenue, $ 1,490,000 6.500%, 06/01/02 Aaa/AA- $ 1,558,913 2,955,000 6.800%, 06/01/03 Aaa/AA- 3,139,688 1,915,000 7.100%, 12/01/11 Aaa/AA- 2,008,356 Kentucky Infrastructure Authority Revenue, 1,930,000 5.000%, 06/01/09, MBIA Insured Aaa/AAA 1,937,238 555,000 7.200%, 06/01/11 Aa3/A 589,688 635,000 5.250%, 06/01/12 Aa3/A 636,588 875,000 6.500%, 06/01/12 Aa3/A 925,313 125,000 5.250%, 06/01/14 Aa3/A 123,906 1,110,000 6.375%, 06/01/14, Pre-Refunded Aa3/A 1,225,160 135,000 5.250%, 06/01/15 Aa3/A 133,481 100,000 5.375%, 06/01/17 Aa3/A 100,125 100,000 5.000%, 08/01/17 Aa3/A 94,250 1,500,000 5.375%, 02/01/18 Aa3/A 1,496,250 Kentucky Local Correctional Facilities Construction Authority Revenue, 5,065,000 5.500%, 11/01/14, FSA Insured Aaa/AAA 5,166,300 Kentucky Area Development, 345,000 5.750%, 12/01/27, LOCFifth Third Bank NR/AA 346,294 145,000 5.600%, 06/01/28, LOCFifth Third Bank NR/AA 143,006 785,000 5.500%, 06/01/28, LOCFifth Third Bank NR/AA 762,431 Kentucky Rural Economic Development Authority, 3,110,000 7.250%, 06/01/17, LOCBank One NR/AA 3,304,375 Kentucky State Properties and Buildings Commission Revenue, 4,510,000 6.625%, 10/01/00, Pre-Refunded NR/AAA 4,825,700 365,000 7.000%, 02/01/01, Pre-Refunded NR/AAA 387,813 1,000,000 6.500%, 08/01/01, Pre-Refunded NR/AAA 1,065,000 220,000 6.000%, 09/01/08 Aa3/A+ 237,600 500,000 5.500%, 11/01/09, AMBAC Insured Aaa/AAA 518,750 400,000 5.000%, 09/01/13 Aa3/A+ 387,000 1,000,000 5.100%, 10/01/17 Aa3/A+ 966,250 1,135,000 5.100%, 11/01/18 Aa3/A+ 1,092,437 3,000,000 6.250%, 09/01/07 Aaa/AAA 3,292,500 Puerto Rico Public Buildings Authority, 1,000,000 6.875%, 07/01/02, Pre-Refunded Aaa/AAA 1,088,750 37,553,162 COUNTY AGENCIES (12.4%) Clark County Kentucky Public Properties Corp. Revenue, 1,120,000 6.700%, 06/01/01, Pre-Refunded A/NR 1,178,800 Floyd County Public Property, Courthouse Revenue, 510,000 5.500%, 09/01/14 NR/A 529,763 Jefferson County Kentucky Capital Projects, 1,000,000 5.200%, 06/01/08, MBIA Insured Aaa/AAA 1,023,750 420,000 5.250%, 06/01/14, MBIA Insured Aaa/AAA 422,100 1,620,000 5.375%, 06/01/18, MBIA Insured Aaa/AAA 1,613,925 1,640,000 5.375%, 06/01/22, MBIA Insured Aaa/AAA 1,635,900 5,900,000 5.500%, 06/01/28, MBIA Insured Aaa/AAA 5,929,500 Kenton County Kentucky Public Property County Courthouse, 455,000 5.000%, 03/01/14 A1/NR 434,525 250,000 5.000%, 03/01/15 A1/NR 236,875 345,000 5.000%, 03/01/20 A1/NR 320,417 1,000,000 5.000%, 03/01/23 A1/NR 925,000 Lincoln County Kentucky Public Properties Corp., 430,000 6.500%, 03/01/22 NR/NR* 468,163 Lyon County Kentucky Properties Corp., 1,085,000 5.100%, 03/01/20 NR/A 1,036,175 Muhlenberg County Kentucky Industrial Development Revenue, 1,500,000 7.000%, 09/01/01 NR/A 1,573,125 Pendleton County Kentucky Multi-County Lease Revenue, 500,000 7.300%, 03/01/02 NR/AA 523,125 570,000 7.550%, 03/01/10 NR/AA 599,925 4,500,000 6.500%, 03/01/19 NR/A 4,786,875 3,000,000 6.400%, 03/01/19 NR/A 3,292,500 Warren County Kentucky Justice, 2,875,000 5.350%, 09/01/29, MBIA Insured Aaa/NR 2,831,875 29,362,318 CITY/MUNICIPAL OBLIGATIONS (8.8%) Danville Kentucky Multi-City Lease Revenue, 545,000 5.000%, 09/01/11 NR/NR* 532,056 Jeffersontown Kentucky Public Project Corp. Revenue, 500,000 5.750%, 11/01/15 A/NR 519,375 Kentucky League Cities Funding Trust COP, 700,000 5.900%, 08/01/16, (Owensboro) NR/A 735,000 1,715,000 6.200%, 08/01/17, (Covington) NR/A+ 1,826,475 Louisville Kentucky Public Properties Corp., 4,090,000 6.700%, 12/01/20, Pre-Refunded A/A- 4,463,213 Mount Sterling Kentucky Lease Revenue, 1,920,000 6.150%, 03/01/13 Aa/NR 2,030,400 7,000,000 6.200%, 03/01/18 Aa/NR 7,376,250 Munfordville Kentucky Industrial Development Revenue, 2,500,000 7.000%, 06/01/19, LOC Bank One NR/AA 2,693,750 Richmond Kentucky District Court Facility Revenue 740,000 5.300%, 02/01/25 A3/NR 718,725 20,895,244 UTILITIES (8.0%) Carrolton & Henderson Kentucky Gas Revenue, 1,000,000 5.000%, 01/01/07, FSA Insured Aaa/AAA 1,012,500 Carrolton & Henderson Kentucky Gas Revenue, 1,750,000 5.000%, 01/01/09, FSA Insured Aaa/AAA 1,758,750 Hardin County, Kentucky Water District, 1,000,000 5.900%, 01/01/25, MBIA Insured Aaa/AAA 1,050,000 Henderson County Kentucky Water District, Waterworks Revenue, 190,000 5.600%, 09/01/21 NR/NR* 185,961 Lebanon Kentucky Waterworks Revenue, 250,000 7.500%, 04/01/01, Pre-Refunded NR/NR* 268,438 Louisville and Jefferson County Kentucky Metropolitan Sewer District Revenue, 1,525,000 6.500%, 11/15/04, MBIA Insured, Pre-Refunded Aaa/AAA 1,692,750 1,000,000 5.000%, 05/15/12, MBIA Insured Aaa/AAA 988,750 250,000 5.000%, 05/15/13, MBIA Insured Aaa/AAA 245,000 230,000 5.000%, 12/01/14, MBIA Insured Aaa/AAA 223,963 2,000,000 5.300%, 05/15/19, MBIA Insured Aaa/AAA 1,970,000 2,500,000 5.000%, 05/15/19, MBIA Insured Aaa/AAA 2,359,375 1,745,000 5.000%, 05/15/22, MBIA Insured Aaa/AAA 1,635,938 4,070,000 5.500%, 05/15/23, MBIA Insured Aaa/AAA 4,100,525 1,000,000 5.250%, 05/15/27, MBIA Insured Aaa/AAA 977,500 Muhlenberg County Kentucky Water District, Waterworks Revenue, 100,000 5.500%, 01/01/12, AMBAC Insured Aaa/NR 103,375 110,000 5.500%, 01/01/13, AMBAC Insured Aaa/NR 113,025 115,000 5.600%, 01/01/14, AMBAC Insured Aaa/NR 118,019 North Nelson County Kentucky, Water Revenue, 205,000 5.200%, 01/01/20 NR/NR* 196,800 19,000,669 POLLUTION CONTROL REVENUE (9.3%) Ashland Kentucky Pollution Control Revenue, (Ashland Oil) 3,000,000 6.650%, 08/01/09 Baa2/NR 3,176,250 Boone County Kentucky Pollution Control, (Dayton Power & Light) 4,000,000 6.500%, 11/15/22 Aa3/AA- 4,325,000 Boone County Kentucky Pollution Control, (Cinergy) 750,000 5.500%, 01/01/24, MBIA Insured Aaa/AAA 757,500 Carroll County Kentucky Pollution Control Revenue, (LG&E Energy) 3,500,000 7.450%, 09/15/16 Aa2/AA- 3,880,625 2,910,000 6.250%, 02/01/18 Aa2/AA- 3,080,963 Jefferson County Kentucky Pollution Control Revenue, (LG&E Energy) 3,800,000 5.900%, 04/15/23 Aa2/AA 4,004,250 Wickliffe Kentucky Pollution Control, (Westvaco) 2,605,000 6.200%, 04/01/07 A1/A 2,609,272 100,000 6.375%, 04/01/26 A1/A 105,750 21,939,610 TRANSPORTATION (6.8%) Kenton County Kentucky Airport Board Airport Revenue, 4,740,000 6.300%, 03/01/15, FSA Insured Aaa/AAA 4,947,375 Kentucky Interlocal School Transportation Authority, 150,000 5.100%, 03/01/05 NR/A 152,250 145,000 5.400%, 06/01/17 NR/A 146,088 200,000 6.000%, 12/01/20 NR/A 205,250 300,000 5.800%, 12/01/20 NR/A 305,625 400,000 6.000%, 12/01/20 NR/A 410,500 400,000 5.650%, 12/01/20 NR/A 403,500 350,000 5.600%, 12/01/20 NR/A 351,750 Kentucky State Turnpike Authority Economic Development Road Revenue, 120,000 8.500%, 07/01/06 A1/A+ 146,850 1,000,000 6.500%, 07/01/08, AMBAC Insured Aaa/AAA 1,118,750 3,505,000 5.625%, 07/01/15, AMBAC Insured Aaa/AAA 3,618,912 Puerto Rico Commonwealth Highway & Transportation Authority Highway Revenue, 4,000,000 6.625%, 07/01/02, Pre-Refunded Baa1/A 4,315,000 16,121,850 HOSPITALS (11.1%) Floyd County Kentucky Hospital Revenue, 245,000 7.500%, 08/01/10, FHAInsured NR/AAA 258,475 Hopkins County Kentucky Hospital Revenue, 1,000,000 6.625%, 11/15/11, MBIA Insured Aaa/AAA 1,060,000 Jefferson County Kentucky Health Facilities Revenue, 1,500,000 5.650%, 01/01/17, AMBAC Insured Aaa/AAA 1,531,875 100,000 5.700%, 01/01/21, AMBAC Insured Aaa/AAA 103,125 1,150,000 6.550%, 05/01/22, AMBAC Insured Aaa/AAA 1,223,313 230,000 5.750%, 01/01/26, AMBAC Insured Aaa/AAA 237,186 1,000,000 5.125%, 10/01/18, MBIA Insured Aaa/AAA 958,750 3,500,000 5.125%, 10/01/27, MBIA Insured Aaa/AAA 3,255,000 Kentucky Development Finance Authority Hospital Revenue, 750,000 7.000%, 09/01/01, Pre-Refunded NR/NR* 807,188 3,000,000 6.500%, 11/01/01, Pre-Refunded A1/A+ 3,210,000 2,150,000 6.750%, 11/01/01, Pre-Refunded A1/A+ 2,311,250 420,000 5.250%, 02/01/09, FSA Insured Aaa/AAA 428,400 1,000,000 5.700%, 10/01/10, ACA Insured NR/A 1,018,750 1,375,000 6.125%, 02/01/12, CGIC Insured, (Kingsdaughters) Aaa/AAA 1,460,938 2,590,000 5.000%, 08/15/15, MBIA Insured Aaa/AAA 2,479,925 3,000,000 5.900%, 12/01/15, FGIC Insured Aaa/AAA 3,138,750 1,000,000 5.850%, 10/01/17, ACA Insured NR/A 992,500 1,990,000 5.000%, 08/15/24, MBIA Insured Aaa/AAA 1,850,700 26,326,125 HOUSING (17.3%) Greater Kentucky Housing Assistance Corp. Multi-Family Housing Revenue, 320,000 6.300%, 07/01/15 Aaa/NR 333,600 2,025,000 6.050%, 07/01/22 Aaa/AAA 2,052,844 275,000 6.400%, 07/01/23 Aaa/NR 288,063 Jefferson County Kentucky Multi-Family Revenue, 1,530,000 5.750%, 06/01/23, (Taylorsville Road Project) NR/AA 1,581,638 Jefferson County Kentucky Multi-Family Revenue, 1,200,000 5.650%, 08/20/34 (Kentucky Towers Project) Aaa/AAA 1,215,000 Kenton County Kentucky Indus. Dev., 1,000,000 6.125%, 12/01/17, FHA Insured Aa/NR 1,038,750 Kenton County Kentucky Industrial Development, 300,000 6.950%, 12/01/26 Aa/NR 328,125 Kentucky Housing Corporation Housing Revenue, 255,000 7.750%, 01/01/07 Aaa/AAA 263,846 835,000 7.600%, 01/01/07 Aaa/AAA 835,000 1,000,000 6.500%, 01/01/07 Aaa/AAA 1,046,250 275,000 7.250%, 01/01/09 Aaa/AAA 282,626 980,000 7.125%, 01/01/10 Aaa/AAA 1,021,650 4,975,000 6.600%, 07/01/11 Aaa/AAA 5,186,435 725,000 5.300%, 07/01/10 Aaa/AAA 731,344 230,000 5.400%, 07/01/14 Aaa/AAA 231,725 750,000 6.250%, 07/01/15 Aaa/AAA 776,250 315,000 6.100%, 07/01/16 Aaa/AAA 324,056 1,450,000 6.400%, 01/01/17 Aaa/AAA 1,513,437 3,445,000 5.300%, 07/01/18 Aaa/AAA 3,350,263 1,065,000 5.550%, 07/01/18 Aaa/AAA 1,065,000 1,450,000 5.800%, 01/01/19 Aaa/AAA 1,469,938 280,000 7.900%, 01/01/21 Aaa/AAA 288,854 30,000 7.800%, 01/01/21 Aaa/AAA 30,000 105,000 8.100%, 01/01/22 Aaa/AAA 108,624 1,625,000 7.450%, 01/01/23 Aaa/AAA 1,690,000 135,000 6.800%, 01/01/24 Aaa/AAA 135,000 290,000 5.850%, 07/01/27 Aaa/AAA 292,175 3,500,000 6.375%, 07/01/28 Aaa/AAA 3,618,125 6,900,000 6.300%, 01/01/28 Aaa/AAA 7,107,000 1,000,000 6.250%, 07/01/28 Aaa/AAA 1,028,750 2,000,000 5.125%, 07/01/38 Aaa/AAA 1,855,000 41,089,368 SCHOOLS (10.3%) Boone County Kentucky School District Finance Corp. School Building Revenue, 1,750,000 6.750%, 09/01/01, Pre-Refunded Aa3/A 1,890,000 2,250,000 6.125%, 12/01/17, Pre-Refunded Aa3/NR 2,413,125 2,295,000 5.700%, 05/01/18 Aa3/NR 2,343,769 Boyd County Kentucky School District Finance Corp., 575,000 5.375%, 10/01/17 Aa3/NR 575,717 Christian County Kentucky School District Finance Corp., 500,000 5.000%, 06/01/09 Aa3/NR 498,750 Fayette County School Building Revenue, 160,000 5.350%, 01/01/14 Aa3/A+ 160,400 1,780,000 5.700%, 12/01/16 Aa3/A+ 1,835,625 Floyd County Kentucky School Building Revenue, 250,000 5.000%, 12/01/09 Aa3/NR 249,688 Garrard County Kentucky School Building Revenue, 100,000 5.900%, 06/01/15 Aa3/NR 104,125 160,000 5.900%, 06/01/16 Aa3/NR 165,600 Grayson County Kentucky School Building Revenue, 1,940,000 6.000%, 01/01/15 Aa3/NR 2,073,375 Hazard Kentucky Independent School District Finance Corp., 555,000 5.300%, 09/01/22 Aa3/NR 543,900 Jefferson County Kentucky School District Finance Corp. School Building Revenue, 370,000 6.200%, 01/01/06, MBIA Insured Aaa/AAA 392,200 100,000 5.250%, 07/01/09 Aaa/AAA 102,000 500,000 5.875%, 01/01/11 Aa3/A+ 528,125 695,000 5.125%, 11/01/14, FSA Insured Aaa/AAA 688,050 Kenton County Kentucky School District Finance Corp. School Building Revenue, 100,000 5.250%, 03/01/06 Aa3/A+ 102,500 Lexington-Fayette Urban County Government Project U.K. Library 725,000 5.000%, 11/01/15, MBIA Insured Aaa/AAA 694,188 1,000,000 5.000%, 11/01/20, MBIA Insured Aaa/AAA 940,000 Meade County Kentucky School District Finance Corp., 400,000 5.700%, 07/01/15 Aa3/NR 422,000 500,000 6.000%, 07/01/16 Aa3/NR 533,750 Middlesboro Kentucky Independent School District Finance Corp. 100,000 6.100%, 08/01/16 Aa3/NR 108,000 Nelson County Kentucky School Building Revenue, 1,820,000 5.750%, 04/01/15 Aa3/NR 1,892,800 Pike County Kentucky School District Finance Corp. School Building Revenue, 720,000 7.000%, 12/01/00, Pre-Refunded Aa3/A 771,300 Rowan County Kentucky School District Finance Corp., 215,000 5.600%, 06/01/16 Aa3/NR 222,794 Scott County Kentucky School Building Revenue, 2,750,000 5.900%, 06/01/18 Aa3/A 2,856,563 Taylor County Kentucky School Building Revenue, 280,000 6.000%, 08/01/16 Aa3/NR 295,750 Todd County Kentucky School Building Revenue, 980,000 6.300%, 10/01/14, Pre-Refunded Aa3/A 1,074,325 24,478,419 Total Investments (cost $228,912,023**) 99.8% 236,766,765 Other assets in excess of liabilities 0.2 476,612 Net Assets 100.0% $237,243,377
RATING FACE MOODY'S/ AMOUNT REVENUE BONDS (99.8%) S&P VALUE
* Any security not rated has been determined by the Investment Sub-Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a rating service. ** Cost for Federal tax purposes is identical. See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1999 (UNAUDITED) ASSETS Investments at value (cost $228,912,023) $ 236,766,765 Cash 1,036,294 Interest receivable 3,965,470 Receivable for investment securities sold 240,000 Receivable for Fund shares sold 186,699 Other assets 900 Total assets 242,196,128 LIABILITIES Payable for investment securities purchased 4,352,169 Dividends payable 243,819 Payable for Fund shares redeemed 149,218 Distribution fees payable 87,962 Management fee payable 78,613 Accrued expenses 40,970 Total liabilities 4,952,751 NET ASSETS $ 237,243,377 Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share $ 225,883 Additional paid-in capital 228,926,703 Accumulated net realized gain on investments 334,036 Distributions in excess of net investment income (97,987) Net unrealized appreciation on investments 7,854,742 $ 237,243,377 CLASS A Net Assets $ 221,314,128 Capital shares outstanding 21,072,318 Net asset value and redemption price per share $ 10.50 Offering price per share (100/96 of $10.50 adjusted to nearest cent) $ 10.94 CLASS C Net Assets $ 1,752,222 Capital shares outstanding 166,912 Net asset value and offering price per share $ 10.50 Redemption price per share (*a charge of 1% is imposed on the redemption proceeds of the shares, or on the original price, whichever is lower, if redeemed during the first 12 months after purchase) $ 10.50* CLASS Y Net Assets $ 14,177,027 Capital shares outstanding 1,349,066 Net asset value, offering and redemption price per share $ 10.51
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) INVESTMENT INCOME: Interest income $ 6,788,025 Expenses: Management fee (note 3) $ 485,168 Distribution and service fees (note 3) 175,232 Transfer and shareholder servicing agent fees 70,000 Trustees' fees and expenses 40,000 Legal fees 27,000 Shareholders' reports and proxy statements 22,000 Audit and accounting fees 13,000 Registration fees and dues 12,000 Custodian fees 9,500 Insurance 5,000 Miscellaneous 12,001 870,901 Expenses paid indirectly (note 7) (9,500) Net expenses 861,401 Net investment income 5,926,624 REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss from securities transactions (431,379) Change in unrealized appreciation on investments (6,586,669) Net realized and unrealized loss on investments (7,018,048) Net decrease in net assets resulting from operations $ (1,091,424)
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) OPERATIONS: Net investment income $ 5,926,624 $ 11,773,350 Net realized loss from securities transactions (431,379) 865,993 Change in unrealized appreciation on investments (6,586,669) (513,405) Change in net assets from operations (1,091,424) 12,125,938 DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6): Class A Shares: Net investment income (5,608,146) (11,135,477) Net realized gain on investments - (207,578) Class C Shares: Net investment income (23,370) (35,988) Net realized gain on investments - (671) Class Y Shares: Net investment income (393,094) (610,932) Net realized gain on investments - (11,388) Change in net assets from distributions (6,024,610) (12,002,034) CAPITAL SHARE TRANSACTIONS (NOTE 8): Proceeds from shares sold 13,356,927 28,425,496 Reinvested dividends and distributions 3,103,876 6,370,081 Cost of shares redeemed (17,052,482) (26,247,691) Change in net assets from capital share transactions (591,679) 8,547,886 Change in net assets (7,707,713) 8,671,790 NET ASSETS: Beginning of period 244,951,090 236,279,300 End of period $ 237,243,377 $ 244,951,090
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION Churchill Tax-Free Fund of Kentucky (the "Fund"), a non-diversified, open-end investment company, was organized in March, 1987 as a Massachusetts business trust and commenced operations on May 21, 1987. The Fund is authorized to issue an unlimited number of shares and, since its inception to April 1, 1996, offered only one class of shares. On that date, the Fund began offering two additional classes of shares, Class C and Class Y shares. All shares outstanding prior to that date were designated as Class A shares and are sold with a front-payment sales charge and bear an annual service fee. Class C shares are sold with a level-payment sales charge with no payment at time of purchase but level service and distribution fees from date of purchase through a period of six years thereafter. A contingent deferred sales charge of 1% is assessed to any Class C shareholder who redeems shares of this Class within one year from the date of purchase. The Class Y shares are only offered to institutions acting for an investor in a fiduciary, advisory, agency, custodian or similar capacity and are not offered directly to retail investors. Class Y shares are sold at net asset value without any sales charge, redemption fees, contingent deferred sales charge or distribution or service fees. On April 30, 1998 the Fund established Class I shares, which are offered and sold only through financial intermediaries and are not offered directly to retail investors. At June 30, 1999 there were no Class I shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of more than 60 days are valued at fair value each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued at the mean of bid and asked quotations and, in the case of other securities, at fair value determined under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are valued at amortized cost if their term to maturity at purchase was 60 days or less, or by amortizing their unrealized appreciation or depreciation on the 61st day prior to maturity, if their term to maturity at purchase exceeded 60 days. b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue discount. Market discount is recognized upon disposition of the security. c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are charged directly to such class. e) USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 3. FEES AND RELATED PARTY TRANSACTIONS a) MANAGEMENT ARRANGEMENTS: Aquila Management Corporation (the "Manager"), the Fund's founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. The portfolio management of the Fund has been delegated to a Sub-Adviser as described below. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund, other than those relating to the day-to-day portfolio management. The Manager's services include providing the office of the Fund and all related services as well as overseeing the activities of the Sub-Adviser and all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund's accounting books and records. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40 of 1% on the Fund's net assets. Banc One Investment Advisors Corporation (the "Sub-Adviser") serves as the Investment Sub-Adviser for the Fund under a Sub-Advisory Agreement between the Manager and the Sub-Adviser. Under this agreement, the Sub-Adviser continuously provides, subject to oversight of the Manager and the Board of Trustees of the Fund, the investment program of the Fund and the composition of its portfolio, arranges for the purchases and sales of portfolio securities, and provides for daily pricing of the Fund's portfolio. For its services, the Sub- Adviser is entitled to receive a fee from the Manager which is payable monthly and computed as of the close of business each day at the annual rate of 0.14 of 1% on the Fund's net assets. For the six months ended June 30, 1999, the Fund incurred fees for advisory and administrative services of $485,168. Specific details as to the nature and extent of the services provided by the Manager and the Sub-Adviser are more fully defined in the Fund's Prospectus and Statement of Additional Information. b) DISTRIBUTION AND SERVICE FEES: The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make service fee payments to broker-dealers ("Qualified Recipients") or others selected by Aquila Distributors, Inc. (the "Distributor") including, but not limited to, any principal underwriter of the Fund, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund's shares or servicing of shareholder accounts. The Fund makes payment of this service fee at the annual rate of 0.15% of the Fund's average net assets represented by Class A Shares. For the six months ended June 30, 1999, service fees on Class A Shares amounted to $169,518, of which the Distributor received $3,834. Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund's Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund's net assets represented by Class C Shares and for the six months ended June 30, 1999, amounted to $4,286. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund's net assets represented by Class C Shares and for the six months ended June 30, 1999, amounted to $1,428. The total of these payments with respect to Class C Shares amounted to $5,714, of which the Distributor received $3,202. Specific details about the Plans are more fully defined in the Fund's Prospectus and Statement of Additional Information. Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund's shares. Through agreements between the Distributor and various broker-dealer firms ("dealers"), the Fund's shares are sold primarily through the facilities of these dealers having offices within Kentucky, with the bulk of sales commissions inuring to such dealers. For the six months ended June 30, 1999, the Distributor received commissions of $12,877 on sales of Class A Shares. 4. PURCHASES AND SALES OF SECURITIES During the six months ended June 30, 1999, purchases of securities and proceeds from the sales of securities aggregated $13,552,849 and $10,501,772, respectively. At June 30, 1999, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $9,083,036 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $1,228,294 for a net unrealized appreciation of $7,854,742. 5. PORTFOLIO ORIENTATION Since the Fund invests principally and may invest entirely in triple tax-free municipal obligations of issuers within Kentucky, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Kentucky and whatever effects these may have upon Kentucky issuers' ability to meet their obligations. 6. DISTRIBUTIONS The Fund declares dividends daily from net investment income and makes payments monthly in additional shares at the net asset value per share or in cash, at the shareholder's option. Net realized capital gains, if any, are distributed annually and are taxable. An additional distribution of gain may be made to the extent necessary to avoid payment of Federal taxes by the Fund. The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Kentucky income taxes. However, due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund's net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. For certain shareholders, some dividends may, under some circumstances, be subject to the alternative minimum tax. 7. EXPENSES The Fund has negotiated an expense offset arrangement with its custodian wherein it receives credit toward the reduction of custodian fees and other Fund expenses whenever there are uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset and the net expenses. It is the general intention of the Fund to invest, to the extent practicable, some or all of cash balances in income-producing assets rather than leave cash on deposit. 8. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Fund were as follows: CLASS A SHARES: Proceeds from shares sold 788,384 $ 8,456,720 2,030,723 $ 21,961,981 Reinvested distributions 286,644 3,073,939 584,567 6,317,336 Cost of shares redeemed (1,238,819) (13,260,893) (2,330,285) (25,200,489) Net change (163,791) (1,730,234) 285,005 3,078,828 CLASS C SHARES: Proceeds from shares sold 79,802 850,501 29,609 319,908 Reinvested distributions 1,657 17,719 2,314 25,002 Cost of shares redeemed (2,357) (25,300) (22,308) (240,974) Net change 79,102 842,920 9,615 103,936 CLASS Y SHARES: Proceeds from shares sold 375,615 4,049,706 568,483 6,143,607 Reinvested distributions 1,137 12,218 2,555 27,743 Cost of shares redeemed (352,375) (3,766,289) (74,568) (806,228) Net change 24,377 295,635 496,470 5,365,122 Total transactions in Fund shares (60,312) $ (591,679) 791,090 $ 8,547,886
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 SHARES AMOUNT SHARES AMOUNT
CHURCHILL TAX-FREE FUND OF KENTUCKY FINANCIAL HIGHLIGHTS (UNAUDITED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Asset Value, Beginning of Period $10.81 $10.81 $10.55 $10.71 $9.97 $10.93 Income from Investment Operations: Net investment income 0.26 0.53 0.55 0.55 0.60 0.60 Net gain (loss) on securities (both realized and unrealized) (0.33) 0.01 0.27 (0.12) 0.74 (0.96) Total from Investment Operations (0.07) 0.54 0.82 0.43 1.34 (0.36) Less Distributions (note 6): Dividends from net investment income (0.24) (0.53) (0.55) (0.59) (0.60) (0.60) Distributions from capital gains - (0.01) (0.01) - - - Total Distributions (0.24) (0.54) (0.56) (0.59) (0.60) (0.60) Net Asset Value, End of Period $10.50 $10.81 $10.81 $10.55 $10.71 $9.97 Total Return (not reflecting sales charge)(%) (0.45)+ 5.13 8.08 4.17 13.75 (3.31) Ratios/Supplemental Data Net Assets, End of Period ($ thousands) 221,314 229,667 226,477 222,889 230,270 232,656 Ratio of Expenses to Average Net Assets (%) 0.72* 0.73 0.73 0.75 0.80 0.73 Ratio of Net Investment Income to Average Net Assets (%) 4.87* 4.89 5.19 5.22 5.74 5.80 Portfolio Turnover Rate (%) 4.35+ 12.79 22.39 8.94 17.09 35.25 The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of Expenses to Average Net Assets (%) 0.72* 0.72 0.72 0.74 0.79 0.72
CLASS A(1) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1999 1998 1997 1996 1995 1994
(1) Designated as Class A Shares on April 1, 1996. Note: Effective September 11, 1995, Banc One Investment Advisors Corporation became the Fund's Investment Adviser replacing PNC Bank, Kentucky, Inc. and effective on May 1, 1998, pursuant to new management arrangements, was appointed as the Fund's Investment Sub-Adviser. * Annualized. + Not annualized. See accompanying notes to financial statements. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Asset Value, Beginning of Period $10.81 $10.81 $10.55 $10.47 $10.82 $10.82 $10.55 $10.47 Income from Investment Operations: Net investment income 0.21 0.44 0.46 0.37 0.27 0.54 0.56 0.43 Net gain on securities (both realized and unrealized) (0.30) 0.01 0.27 0.11 (0.31) 0.02 0.29 0.11 Total from Investment Operations (0.09) 0.45 0.73 0.48 (0.04) 0.56 0.85 0.54 Less Distributions (note 6): Dividends from net investment income (0.22) (0.44) (0.46) (0.40) (0.27) (0.55) (0.57) (0.46) Distributions from capital gains - (0.01) (0.01) - - (0.01) (0.01) - Total Distributions (0.22) (0.45) (0.47) (0.40) (0.27) (0.56) (0.58) (0.46) Net Asset Value, End of Period $10.50 $10.81 $10.81 $10.55 $10.51 $10.82 $10.82 $10.55 Total Return (not reflecting sales charge)(%) (0.87)+ 4.24 7.16 4.72+ (0.37)+ 5.26 8.34 5.24+ Ratios/Supplemental Data Net Assets, End of Period ($ thousands) 1,752 949 845 433 14,177 14,335 8,957 5,823 Ratio of Expenses to Average Net Assets (%) 1.57* 1.59 1.57 1.56* 0.57* 0.58 0.57 0.58* Ratio of Net Investment Income to Average Net Assets (%) 4.00* 4.04 4.30 4.34* 5.01* 5.03 5.31 5.41* Portfolio Turnover Rate (%) 4.35+ 12.79 22.39 8.94 4.35+ 12.79 22.39 8.94 The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of Expenses to Average Net Assets (%) 1.56* 1.57 1.56 1.55* 0.56* 0.57 0.56 0.56*
CLASS C(1) CLASS Y(1) SIX MONTHS YEAR ENDED PERIOD(2) SIX MONTHS YEAR ENDED PERIOD(2) ENDED DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED JUNE 30, 1999 1998 1997 DEC. 31, 1996 JUNE 30, 1999 1998 1997 DEC. 31, 1996
(1) New Class of Shares established on April 1, 1996. (2) From April 1, 1996 to December 31, 1996. + Not annualized. * Annualized. See accompanying notes to financial statements. SHAREHOLDER MEETING RESULTS (UNAUDITED) The Annual Meeting of Shareholders of Churchill Tax-Free Fund of Kentucky (the "Fund") was held on April 23, 1999. The holders of shares representing 71% of the total net asset value of the shares entitled to vote were present in person or by proxy. At the meeting, the following matters were voted upon and approved by the shareholders (the resulting votes for each matter are presented below). 1. To elect Trustees. NUMBER OF VOTES: TRUSTEE FOR WITHHELD Lacy B. Herrmann 174,223,169 2,611,811 Thomas A. Christopher 174,276,660 2,558,320 Douglas Dean 174,276,660 2,558,320 Diana P. Herrmann 174,452,657 2,382,324 Carroll F. Knicely 174,452,657 2,382,324 Theodore T. Mason 174,452,657 2,382,324 Anne J. Mills 174,556,617 2,278,363 William J. Nightingale 174,556,617 2,278,363 James R. Ramsey 174,556,617 2,278,363 2. To ratify the selection of KPMG LLP as the Fund's independent auditors. NUMBER OF VOTES: FOR AGAINST ABSTAIN 172,046,876 741,812 4,046,281 PREPARING FOR YEAR 2000 (UNAUDITED) The Trustees and officers of the Fund have been monitoring issues involving preparedness for the turn of the century for some time in an effort to minimize or eliminate any potential impact upon the Fund and its shareholders. Our officers have focussed significant time and effort in order that the various computerized functions that could affect the Fund are ready by the beginning of the year 2000. The Fund is highly reliant on certain mission-critical suppliers' services. Each supplier of these services has provided the Fund's officers with assurances that it is actively addressing potential problems relating to the year 2000. The officers, in turn, are monitoring and will continue to monitor the progress of its suppliers. The Fund has NOT incurred, nor is anticipated to incur, any costs related to Y2K. All such costs are being incurred by the respective vendors. As you can well understand, we cannot directly control our supplier operations. We assure you, however, that we recognize a responsibility to inform our shareholders if in the future we become aware of any developments which would lead us to believe that the Fund will be significantly affected by year 2000 problems. We will continue to keep you up-to-date through future communications. -----END PRIVACY-ENHANCED MESSAGE-----